To Sell or Not to Sell, That Is the Question. As competition grows, new markets in other countries become an option impossible to overlook. The challenge is not only selling to those markets, but selling on open account terms, as most competitors will be willing to do. Fear of selling to those markets is somehow justified because of the risks involved, especially the risk of not getting paid or the risk of failing to collect through court. Mexico is no exception and does present its challenges, but should you be worried to the extent of holding out and relinquishing that piece of the pie to your competitor?
Selling to Mexico on open account terms and getting paid is possible and achievable. For this you will only need a proven plan to minimize risks effectively. So the answer to the above question is that you shouldn't be worried about selling into Mexico. What you should worry about is selling with your eyes closed!
A Game Plan for Exporters
Contrary to some misconceptions that tell you it's impossible to collect in a Mexican court, I say you can, provided that you learn and follow the rules of the game for credit sales in Mexico. Sun Tzu once said: "Position yourself where you cannot lose" (The Art of War 4:3.22).
To gain this position, you have to start with strategy. Your usual credit and sales policy for domestic sales will just not work because you're venturing into another culture, a different business setting and a totally different legal system. So you have to create a game plan that will give you a strategic advantage in court should litigation be required to collect.
This game plan will essentially be to create a new credit and sales policy for Mexico, and it must include the following:
1. Proper due diligence work to accurately assess the customers' capacity, capital and character;
2. Use a credit application that includes terms and conditions of sale that will create that advantage;
3. Secure proper documentation to support your sales, such as purchase orders and delivery receipts;
4. Add security to your collection by implementing guarantees, promissory notes and/or pledge agreements; and
5. Create more options for litigation by using jurisdiction and arbitration clauses to your advantage.
1. Doing Your Due Diligence Work
To dig deep for accurate information on a prospect, it is wiser to conduct a thorough investigation through a local source, either an attorney, a credit reporting agency or a private investigator. Remember that not even the strongest contract will save you if you run into a company with a history of fraud or one that is heavily undercapitalized. So investigate your prospect well, with due diligence.
It is recommended to check the Public Registry of Property & Commerce to know the prospect's current legal status and see filings regarding owned property, liens, bankruptcy proceedings, claims, attachments, etc. A search for "legal proceedings" pertaining to your prospect should also be conducted at the local courts. The U.S. Commercial Service (www.export.gov) can also assist in obtaining an International Company Profile.
If you do it on your own, the Mexican Credit Bureau (www.burodecredito.com.mx) can provide your prospect with a credit report, so ask him to provide one. These are very accurate. You can also check the prospect's good standing at the Mexican Enterprise Information System (www.siem.gob.mx). Registration is not required by law, but a company not found there may lack registration with Mexico's taxing authorities or may have other problems.
Be wary of several companies found operating at the same premises, or the existence of other related companies (groups of companies). It is extremely hard to pierce the corporate veil in Mexico. Also consider companies in specific industries that carry more risk, such as agriculture, construction, services, etc. …